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In a world where people lived within their means, Visa and its competitors would not exist. But with a market valuation of about $133 billion, and profit margins at 42%, Visa proves that extending credit to consumers and assuming they’ll be irresponsible is a gainful industry.

Visa’s primary business entails allowing financial institutions to distribute cards bearing its brand name to account holders, and charging merchants for the right to accept Visa.

For example, Bank X provides Visa cards to account holders, enabling them to shop around and make purchases without carrying wads of cash. But using a credit card instead of actual cash makes it harder to keep track of your spending, and thus likelier to buy more than you would using cash. So Bank X charges interest, and Visa profits.

When a merchant signs on to accept Visa cards, it pays up to 3% of each transaction to Bank X, which has paid Visa for the right to use its network. Merchants know it’s better to pay that 3% and receive 97% of each transaction than to refuse credit cards and lose customers to competitors who accept them.

Visa’s technological prowess is extraordinary. It processes more than a billion transactions a week. Visa obtains a piece of every authorization and settlement, and charges for the access to its worldwide network.

The bottom line is Visa is selling personal convenience with a price. Consumers who pay off their Visa bill each month force financial institutions to pay to accommodate them. But consumers who maintain a monthly credit card balance contribute to a scenario that helps Visa profit handsomely. 

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